Oct 5 (Reuters) – Brazil’s financial markets were poised for a rally on Monday after right-wing Senator Flavio Bolsonaro took the lead in the first round of the country’s presidential election on Sunday against incumbent Luiz Inacio Lula da Silva.
Below is a selection of comments from investors and analysts.
THIERRY LAROSE, PORTFOLIO MANAGER AT VONTOBEL
“We expect a strong rally across Brazilian assets.
“It remains to be seen whether Flávio Bolsonaro would ultimately prove more fiscally responsible than Lula would be in a fourth presidential term.
“However, markets are likely to give him the benefit of the doubt, trusting in rapid announcements about a fiscal adjustment that, if credible and backed by such a favourable institutional configuration, would extend the rally well beyond the traditional honeymoon period.
“The outcome of the gubernatorial contests, where right-wing and centre-right candidates won the largest states in the first round, including São Paulo and Minas Gerais, further strengthens the market-friendly implications of the vote.”
VIKTOR SZABO, EMERGING MARKET DEBT PORTFOLIO MANAGER AT ABERDEEN
“Positive, bullish. It feels like it’s Bolsonaro’s election to lose now.
“The expectation from the sell side is a 4 to 5% move in FX and 7 to 8% (rise) on the equity side – and it should see a strong rally in local rates too on the expectation of a stronger cutting cycle from the central bank.”
JEFF GRILLS, HEAD OF EMERGING MARKET DEBT AT AEGON ASSET MANAGEMENT
“You have to be cautious, because what we have learned is voter intentions are hard to predict and it’s difficult to draw a conclusion from a first round result.
“If Bolsonaro does win then fiscal constraints will be more likely, which is what Brazil needs.
“If Lula wins, there is always the perception that people move towards the centre once they have won, the risk here is that perhaps he doesn’t this time.”
GRAHAM STOCK, SENIOR SOVEREIGN STRATEGIST AT RBC BLUEBAY
“Yesterday was a very good result for Flávio Bolsonaro and he is clear favourite for the run-off. He won 47:45 in the first round, and should pick up transfer votes from eliminated candidates in a ratio of around 70:30, resulting in a big margin for Lula to overturn on October 25th.
“As an aging incumbent who already seems to have thrown every policy promise at voters, it is hard to imagine him coming up with anything new. (There was a) strong showing for Bolsonaro’s PL in the congressional and state races also, although Congress is still unlikely to be fiscally conservative — more likely just focused on reining in the Supreme Court and getting Jair Bolsonaro out of prison.
“Overall, local markets in particular are likely to perform very well on the back of this first-round result.”
THOMAS HAUGAARD, PORTFOLIO MANAGER EMERGING MARKET HARD CURRENCY DEBT AT JANUS HENDERSON INVESTORS
“The immediate read-through is clearly supportive for Brazilian assets, reflecting the higher probability of fiscal consolidation and structural reform.
“Fiscal credibility therefore remains the key medium-term variable: a disciplined framework could lower sovereign risk premiums, improve debt dynamics and support capital inflows, but the market will ultimately require policy execution rather than electoral signalling.
“We see a strong potential for Brazil to stabilise its credit rating in the case of a Bolsonaro win, but only expect to gain clarity when we have the final outcome of the second round.”
GUSTAVO MEDEIROS, HEAD OF GLOBAL MACRO RESEARCH, ASHMORE GROUP
“The 25 October run-off is not a foregone conclusion, but the arithmetic heavily favours Flávio.
“A Flávio presidency would inherit a divided country. He is untested in executive office, his father will press for amnesty, and parts of the elite remain concerned about democratic institutions, even after a healthy alternation of power.”
(Reporting by Marc Jones and Libby George in London,; Editing by Kate Mayberry)
